Build Illinois--for Whom?

April 01, 1986

Some fussbudgets have complained that Gov. Thompson`s Build Illinois program is shortchanging the Chicago area. How unfair. Chicago just got one of the biggest projects subsidized so far under the Build Illinois label: a luxury high-rise apartment building on prime lakefront property.

No doubt some people will gripe. They`ll point out that the governor`s sales pitch for Build Illinois didn`t say a word about expensive housing in ritzy areas. He talked only about helping municipalities weather the loss of federal aid by providing money for sewers, highways, industrial parks, job training and homes for low-income families.

There will be some of that. Sometime. But the governor`s Build Illinois agenda has changed a bit since he introduced it with such fanfare a year ago. In addition to giving a helping hand to cities and families struggling with financial hardship, it is also giving a helping hand to developers, law firms and bonding houses that help the governor.

The biggest portion of Build Illinois is the $1 billion in bonding power it bestowed on the Illinois Housing Development Authority, a state agency created to provide homes for people with low and moderate incomes. The agency must have a warped view of wages in Chicago. It is using $70 million in tax-exempt bonds to subsidize an apartment building with rents that range above $2,000 a month. The land owner, law firms and bonding houses involved in the deal have contributed more than $30,000 to Gov. Thompson`s campaign fund in the last five months.

Subsidies for expensive housing might be justified if there is no other way to get vacant land back on the tax rolls. But this apartment building will be in Illinois Center, a pricey collection of lakefront hotels, office towers and residential buildings north of the river.

This is not the first time the Illinois Housing Development Authority has veered from its mandate. Its tax-exempt bonds have financed other luxury high- rises in affluent neighborhoods. James Kiley, director of the agency, says these projects are justified because each has some one-room apartments that rent for only $450 a month or so. Just the thing to relieve the misery of families in Cabrini-Green and North Lawndale.

Mr. Kiley`s other excuse is hardly more credible. He collects a 1 percent mortgage fee from the developers who get his low-cost loans and uses it to provide housing for genuinely poor people in genuinely needy neighborhoods. But selling $70 million in tax-exempt bonds to raise $700,000 hardly seems an efficient way to subsidize. Other states manage to sell bonds specifically for low-cost housing. The Kentucky Housing Corporation has created a trust fund that will lend nearly $1 billion at low interest rates to help low-income people buy homes.

Tax-exempt bonds may seem like a painless form of subsidy, but they have become an intolerable drain on the federal treasury. Ten years ago, $30 billion were sold. In 1984, sales totaled more than $136 billion. The glut has come almost entirely from the growth of private-purpose bonds such as the Build Illinois housing ventures. That reduces the market for public-purpose bonds, raising the cost of local government. No wonder every tax overhaul bill under consideration by Congress places some limits on these private-purpose bonds, ranging from subjecting them to a minimum tax to ending them altogether. They have been a useful tool for pumping up sagging local economies, but their abuse makes it difficult to defend them. And Build Illinois has just bosltered the case for killing them.